A common tip for novice savers who don’t want to get into the details is to invest in global equity index funds. They track a global stock index and are often considered relatively safe investments. What many do not know is that the exposure to the US market and the dollar is large and has increased in recent years.
— It is a very large dollar exposure, now up to 70 percent. In 2008, it was around 50 percent, says Frida Bratt, savings economist at the online broker Nordnet.
During the year, the dollar exposure has been good for Swedish savers. As the dollar has strengthened against the krona during the year, Swedes’ savings in global funds have not decreased at the same rate as the US stock market has fallen.
The dollar has gone from costing around nine kroner to almost eleven kroner today, levels we haven’t seen in 20 years. This has meant that Swedes who invested in index funds that follow the broad S&P 500 index at the latest last week had a net plus for the year, even though it is in the red for the same period.
Risk of currency headwinds
But now that the dollar is so high, there is a risk of a currency headwind, says savings economist Nicklas Andersson at the online broker Avanza, especially as the American central bank has been ahead of the European ones.
— You should be aware of that, I think. If you want to start long-term, ongoing savings, it matters less. If, on the other hand, you want to invest a larger sum today, it becomes more of a matter of timing, then you can consider spreading the purchases over a number of months, says Andersson.
Frida Bratt agrees. In light of the fact that the global index funds are not as global as one might think, she thinks that you should consider saving in markets other than the American one.
— It may not be time to buy a US fund alongside the global stock index fund. But this is difficult, because it’s not going well for markets elsewhere either, she says.
“Don’t think about this”
However, both economists agree that global index funds are a good investment, even if the conditions looked better this spring with a strong krona against the dollar.
— For those who are intimidated by these terms and for that reason are considering putting the savings plan on the shelf, my message is to simply not think about it, invest long-term instead.
But active savers who find this kind of fun can think about what a strong dollar means for one’s savings.
— In the medium-term perspective, the risk should be greater for currency headwinds than tailwinds, although much points to continued dollar strength for the time being. Let your savings horizon and purpose of the money guide you. If you have a wedding or an apartment purchase planned in the short term, I don’t think you should invest the money in the stock market at all, says Nicklas Andersson at Avanza.